Crude rises on Houthi claim of missile hit on Saudi top refinery

The main question for oil markets is whether the Houthi assertion will be confirmed as actual lost supply. Currently, the price movement is driven by headline risk regarding a refinery that Saudi Arabia has not yet acknowledged as damaged, so prices could reverse if the damage is minor, or surge higher if refining capacity is taken offline. An attack on a facility of that scale would have a greater impact on refined products like diesel than on crude oil, aligning with the shipping and refining concerns that UBS and the RBNZ highlighted this week. Sunday's OPEC+ decision to keep output steady, with most core members already below their targets, provides little buffer if supply gets disrupted. Higher crude prices also directly feed into the inflation worries expressed today by RBA Governor Bullock.

Oil recovered a portion of Tuesday's decline following the Houthi claim of a missile hit on Saudi Arabia's largest refinery, but without confirmation from Riyadh, the market is pricing in risk rather than actual lost supply.

Key points:

• Brent climbed roughly 1.3% to about $115, and WTI rose approximately 1.2% to about $101 as of 01:40 GMT, per Reuters.
• The Houthis in Yemen stated they hit Saudi Arabia's largest refinery, a 550,000 barrel-per-day plant. Saudi officials did not immediately confirm the attack.
• According to Reuters, the strike reignited worries about supply risks in the Middle East. Oil prices had dropped nearly $2 on Tuesday as regional negotiations reduced concerns.
• A survey by Reuters indicated a rise of about 15,000 barrels in US crude inventories for the week ending October 23.
• OPEC+ is anticipated to maintain December output targets unchanged on Sunday, sources told Reuters, as most core members are already producing below their quotas.
• Traders reported that Russian crude exports from Baltic and Black Sea ports might decrease next month as domestic refiners boost diesel output.

During Asian trading on Wednesday, oil prices increased after the Yemeni Houthis claimed a missile strike on Saudi Arabia's biggest oil refinery. Reuters reported that this action revived fears about Middle East supply risks tied to the conflict with Iran and its allies.

Brent crude futures gained about 1.3% to roughly $115 a barrel at 01:40 GMT, and US WTI crude rose around 1.2% to near $101, according to Reuters. This uptick recouped some of Tuesday's nearly $2 drop, which occurred when Middle East talks had alleviated supply concerns.

On Tuesday, the Iran-backed Houthis claimed they struck the 550,000 barrel-per-day plant, escalating their assaults on Saudi Arabia, which is the largest crude exporter and second-largest producer globally. Saudi officials did not immediately verify the strike, and no details on damage or operational impact were available. Reuters characterised the price increase as a response to the attack rekindling supply fears.

The price rises occurred even as a small increase in US crude stockpiles was anticipated. A Reuters survey of eight analysts indicated an uptick of approximately 15,000 barrels in US crude inventories for the week ending October 23, a very minor change preceding official data.

Market speculation about a possible Israeli strike on Iran following Tuesday's general election is adding to the risk premium. Exit polls showed Prime Minister Benjamin Netanyahu's coalition far from securing a 61-seat majority in most polls, though final results will not be out until November 4. Some analysts have suggested that an electoral loss could increase the likelihood of military escalation, and Israeli media reported that a plan to strike Iran was discussed at high levels before the vote. Israel's defense minister denied reports of internal disagreement over such a plan as unfounded and stated there was no plan to attack Iran before the election, with no official signs of imminent action. Nevertheless, the speculation helps explain why traders remain keen to price in Middle East supply risk.

Focus is also shifting to OPEC+. The organization is anticipated to maintain December output targets unchanged at its Sunday meeting, three sources familiar with the matter told Reuters, aligning with market forecasts. Output for most of the seven core members—Saudi Arabia, Russia, Iraq, Kuwait, Algeria, Kazakhstan, and Oman—is currently below their quotas, which constrains the impact of any quota decision on actual supply.

Russian exports also play a role. Traders informed Reuters that crude shipments from Russia's Baltic and Black Sea ports might decline next month as domestic refiners boost diesel output after an agreement with Washington earlier this month.

The central question for prices is whether the attack results in any permanent loss of refining capacity. Until Saudi Arabia confirms the damage level, the price response reflects risk rather than verified lost supply, making crude vulnerable to more news from the region, the upcoming OPEC+ meeting, and this week's US inventory data.